Locum tax clawback leaves ‘most’ CCA multiples in dispute with HMRC
Company Chemist Association (CCA) members are quarrelling with the UK tax authority over an estimated £550 million retrospective clawback for some pharmacies that employ locums, the organisation has revealed.
Pharmacies could be forced to pay huge costs to HM Revenue and Customs (HMRC) thanks to the enforcement of updated guidance on tax rules, the CCA told C+D yesterday (January 8).
HMRC said that it is “collecting the tax that is due under the law”.
In June, HMRC removed its sector-specific guidance for locum pharmacists, which outlined that locums were likely to be considered self-employed for tax purposes.
The guidance was replaced with a general tool that determines whether a worker comes under the scope of IR35 “off-payroll” legislation.
Pharmacies whose locums don’t fall under this legislation - and are deemed employed for tax purposes - “must deduct income tax and employee national insurance contributions from fees”, according to government guidance updated last month.
Now the CCA has said that the UK’s tax authority is seeking to retrospectively “claw back” income tax and national insurance contributions from pharmacies that treated locums as self-employed.
It estimated this “would be up to £550m for the six years to 2020/21” and that pharmacies “would face an extra £100m a year in additional costs if locums are classed as employees”.
The membership body told C+D that although “pharmacy businesses have been following HMRC guidance for decades now…HMRC is seeking to retrospectively change” the tax position of locums.
“This will have grave consequences for patient access…against a backdrop of a worrying rise in pharmacy closures”, the CCA said.
It confirmed that “most” of its members are currently in dispute with HMRC over the change.
HMRC: “Fair and pragmatic”
An HMRC spokesperson told C+D today (January 9) that its “approach to resolving the situation with locum pharmacists has been both fair and pragmatic”.
They said that HMRC is “collecting the tax that is due under the law”.
The UK tax authority added that it estimates tax due by pharmacy businesses that have incorrectly classed locum pharmacists as self-employed is around one-tenth of the figure estimated by the CCA.
It explained that rules on employment status remain the same and that businesses should check locums’ tax status using its Check Employment Status for Tax (CEST) tool.
HMRC said its decision to remove the locum-pharmacist-specific occupational guidance in June is unrelated to its ongoing compliance enquiries.
It added that by collecting this tax, it is “creating a level playing field for everyone and helping to fund vital public services, such as schools and hospitals”.
Responding to the news last week (January 4), the Pharmacists’ Defence Association (PDA) said that employers and agencies who have removed locum’s “ability to negotiate rates - which the PDA believes undermines their status as self-employed contractors” - have contributed to the tax authority’s decision to treat locums as employees for taxation purposes.
The union said that the access to “training, payments and other resources primarily via community pharmacy businesses distorts the position of locums” and that the “pharmacy contractor-led model reinforces the impression of a ‘master/servant’ relationship”.
The PDA said that it has previously “encouraged those pharmacy businesses to ensure they treat locums as genuinely self-employed contractors” and that it “continues to push for the locum population to be treated as separate, self-employed entities”.
The union stressed that “locums should ask their tax advisors what this means for their own tax affairs”.